Kenya is On the Verge of Economic Recession and the Government is Not Helping

By Isaac Korir / September 13, 2018

Kenya risks slipping into serious economic recession if the current concerns of extreme cost of living, unsustainable debt, reduced consumer spending, corruption, and failure to pay suppliers by various levels of government are not addressed immediately.

Deny all you want, but we can all admit that the country’s economy is in shambles. In fact, those who deny the fact that Kenya is slipping into the abyss of recession is selling something, has been paid to be silent, or is just being an absolute ignoramus.

The government leads the pack, some high-ranking officials that we elected into leadership positions come in second. Then there are those who fill the fool’s paradise and are characterized by perpetual debates even on things that are self-explanatory.

It is ironical that the ordinary Mwananchi must point out key areas that need to be addressed by individuals who purport to know where the economy is heading. Foreign investors, obviously, have always been hungry for the resources in Africa, Kenya is one.

The Chinese no longer hide their game. They are everywhere, sweeping across African nations and establishing what might soon be their strongholds through excessive lending. Pitifully, African states are all smiles and jumping to the train not weighing the consequences of having too many debts.

Take Kenya for instance, the public debt, for the first time has gone past the 5 trillion mark, which is a long way from the 2 trillion in 2003. China, being the country’s largest creditor holds a significant percentage of the total debt.

According to the Economic Survey 2018 by the Kenya Bureau of Statistics, China holds 66 percent of the total debt after the country’s debt increased 52.8 percent to 478.6 billion shillings in 2017 compared to 313.1 billion shillings in 2016.

Anyone of sound math will tell you that for the past one year, the accrued debt from the lender stood at 165 billion shillings. The data further reveals that the total debt Kenya owes China is 722.6 billion shillings.

The total debt to the lender back in 2013 was 63 billion. The current figure shows that the debt has risen sevenfold. Three years before that, China had lent Kenya a negligible 14 billion shillings, but everything went south when the country involved the lender in the development of the Standard Gauge Railway (SGR).

The SGR accelerated the debt elevating the lender’s debt stock from 252 billion shillings in 2015 to 465 billion shillings in 2016. And the debt is still rising. It is estimated that by the completion of the SGR, Kenya will have used another 1 trillion shillings. Where do you think that is coming from?

In light of understanding how we are slowly sinking into debts, it is worth noting that we owe other multinational institutions quite an amount. The United Nations and the World Bank had a combined debt stock standing at 526.6 billion shillings as at 2017.

Loans from Japan as at June 2017 stood at 91.4 billion shillings, whereas debt from France, the third biggest lender to Kenya, stood at 63.2 billion shillings in 2017.

At the rate at which Kenya is borrowing money may soon lead to more borrowing to repay other loans. Kenyans already owe lenders a lot indirectly and they, with the future generations, will pay the price.

The debts are becoming unsustainable. They are already categorized under harmful debts. The situation is critical and it is slowly beginning to crowd out development and social programs since much of the revenue collected is or will be used to service the debts.

Strategic national assets are at risk and Kenya might be forced to cede their control to be better placed at paying back the loans. Already, countries like Sri Lanka, for instance, handed over its port to the Chinese to settle the claims.

Recently, the government added oil to the fire when it affected the 16 percent VAT on fuel. For a country that is on the verge or tumbling economically, that was a stupid move even if others see it as a thing of a good cause.

Although it isn’t entirely a determinant of the cost of living, you cannot argue whether manufacturers will not increase the prices of products to cover the high costs of production or not. As a matter of fact, these high costs will chase away potential investors far from discouraging business startups.

Some statistics paint a picture of high sustained growth in Kenya, but deep down, we know otherwise. For example, after the IMF review, the claim was that inflation levels have remained within the target range since July 2017 owing to favorable weather conditions bringing down food inflation.

Central Bank of Kenya also projected that the country’s economy will grow by 6.2 percent in 2018. But it is already a bad year. The tax changes and the verdict surrounding the fuel crisis is bound to influence how the economy will progress.

Meanwhile, the gap between the poor and the high-income earners continue to rise. Those living under the poverty line, with the increased cost of living, will hardly remain with enough income for other needs.

Their cries are aloof and the leaders supposed to represent them are busy mauling cash and denying involvement in public funds embezzlement. All is not rosy people. The future is bleak, and although we thank the Director of Public Prosecutions Noordin Haji for holding a rather stern position in pursuing those misusing the office, there is a lot that needs to be done to weed out corruption in the country.

The Jubilee government has been rocked by corruption cases that are hard to dispute. Some of the corruption cases conspicuously show how the rot has penetrated the government.

For one, there is the 9 billion-shilling National Youth Service (NYS) that saw the arrest of several high-ranking officials including the NYS Director-General Richard Ndubai. Then there is the National Cereals and Produce Board (NCPB) scandal, a 1.9 billion-shilling scam involving the management and unscrupulous traders.

Let us not forget the Youth Enterprise Development Fund (YEDF) where 7 officials were suspended in May 2018 following the revelation of suspicious payment of 10 million shillings to four youth groups. Incidentally, the same institution was in 2016 faced with another notable scam where Chief Executive, Bruce Odhiambo was on the limelight of a 180 million shillings scam.

Another corruption case is the National Tree-Planting Program. A program meant, for all intents and purposes, to be for a good cause but ended up being a cash cow worth 2 billion shillings for some individuals.

Kenya Pipeline Company (KPC) was also at the center of a corruption saga worth 647 million shillings. The officials featured were involved in the flawed procurement of aircraft fueling gadgets.

The list could go on and on, but you get the point. Others are getting rich at the expense of the poor, which can only mean that the struggle of the low-income earner will go on forever.

Add this to other bottlenecks of the economy; county governments not receiving timely allocations, or insufficient for that matter, pensioners not getting paid and salaries spent before even the month ends, coupled with reduced consumer spending and you get a country ripe for imminent economic disaster.

Hunger still bites some parts of the country, some farmers still remain unpaid with others having lots of farms produce with nowhere to sell. The poor cannot afford even the basic needs when medical care and essential services are becoming unaffordable.

Fingers are crossed, and our breaths are held. We are, and we will continue paying for these economic consequences if the case is not addressed with immediate effect. The careless attitude towards debt, the Budget deficit, the balance of trade, the rising corruption and the consumer spending on the decline as the government worsens the case with taxes, there is only one way this country and its economy is heading; down.

Soko directory was formed in 2008 by Hidalgo Investments Ltd. Hidalgo Investments is an investment company with diverse interests in the fields of finance, government tenders, business consultancy and corporate image consultancy and legal research, and was incorporated in 2008 under the Laws of Kenya, Cap 486.